Category Archives: Estate Planning

There are numerous people that have charities that are near and dear to their heart. Throughout their lives they may give a considerable amount of their time and money to specific charities. Such individuals may also want to continue giving to these particular charities even after they pass on. The individuals that want to leave funds to a charity upon their demise have the option of obtaining life insurance for a charity. Although this may sound somewhat peculiar, there are a number of people that take this particular route in order to ensure that their special charities continue to receive the monies they are used to receiving even after a person’s demise. While some individuals may choose to leave monies to a charity via a will, obtaining life insurance for charity is usually the best way for an individual to leave a specific amount of money for their charity without having to worry about such issues as the will being contested.

What is Life Insurance for a Charity?

Those that are unfamiliar may want to know what is life insurance for a charity? Life insurance for a charity is basically setting up an insurance policy so that a charity is able to receive funds upon a person’s demise. In many ways, the charity is the beneficiary. However, there are circumstances where the policyholder of the life insurance policy can decide that the charity itself will be the policyholder. It is very important to understand that life insurance for a charity only becomes effective for payout when the policyholder passes away. For some, this is an excellent way for them to be able to make sure that their favorite charities receive income even after their death. In order to keep the life insurance for a charity applicable and active, all premiums must be paid in full on a timely basis.

What is the Purpose of Life Insurance for a Charity?

As stated before, the main purpose of life insurance for a charity is to make sure that a charity is able to receive funds upon a person’s demise. Often times people that leave monies to charities usually do so because these charities are close to their heart. They have probably already formed some type of relationship with the charity and they want to continue to provide financial support even after death. In other cases, a person may just simply decide they want life insurance for a charity because they want to give a specific amount to a particular charity upon death. Individuals that choose to obtain life insurance for a charity have a number of ways of executing this type of policy. Some individuals choose to purchase a new policy where the charity becomes the policyholder. Then there are others that may decide to purchase the insurance policy under their name and then simply make the charity a beneficiary. There are also cases where individuals decide to make their estate the beneficiary and then a certain amount is set aside as a bequest to the charity in the will. Ultimately, the whole idea of life insurance for a charity is to provide a charity with monetary support after a person passes away. This is an excellent option for anyone that has developed a firm relationship with a charity that they truly believe in and want to make sure that the charity is properly funded in the future.

How Individuals and Charities Benefit From These Policies?

It should be noted that with life insurance for a charity both the individuals and charities benefit greatly from these types of life insurance policies. Individuals that choose to obtain a life insurance policy for a charity benefit greatly through a number of tax benefits. The ways in which an individual receives the tax benefits from a life insurance for a charity depends on how the policy is executed. If an individual decides to purchase an insurance policy and make the charity both the beneficiary and the policyholder, then any premiums that are paid on this particular life insurance policy are considered a tax-deductible donation. In the case where an individual decides to make the charity a beneficiary on a pre-existing life insurance policy, then the individual will not be able to receive any tax benefits on the premiums paid out. However, as long as the policy has a cash surrender value, the charity can provide a tax receipt which is equal to the amount of the cash surrender value. The individual will be able to claim a charitable donation credit once the transfer of the policy ownership to the charity is confirmed.

Overall, obtaining life insurance for a charity is an excellent way to support causes that are near and dear to one’s heart after one passes away.

A strategy to protect the value of your legacy

A permanent life insurance policy can provide your beneficiaries with the funds necessary to pay taxes owing upon your death.

The Preserve your wealth strategy is designed for individuals who:

Have built-up significant wealth in capital assets

Have a second property that has appreciated in value

Want to keep a vacation home in the family

Are worried about leaving their family with a large tax burden

Want to leave their full estate to heirs or favourite charity

Want to provide funding for final expenses, outstanding debts, legal fees and taxes

The situation

You have worked hard to achieve a degree of financial success. As each year passes and you become financially independent, you may think your need for life insurance decreases. However, the largest burden on your estate can be the taxes owing on assets upon your death. This may force the sale of some or all assets, perhaps below fair market value, in order to pay the tax. The family may be forced to sell a cottage or vacation property to pay the taxes owing on its increase in value. This can potentially reduce the legacy you will leave to your heirs or favourite charity. Would you like to know how to preserve your wealth to ensure the full value of your estate is received by your heirs or favourite charity?

The strategy

A permanent life insurance policy can provide your beneficiaries with the funds necessary to pay taxes owing upon your death. Life insurance can be a cost-effective strategy to provide funds exactly when they are needed. A tax-advantaged permanent life insurance policy allows for the accumulation of cash values inside the policy, within certain legislative limits and without paying income tax on growth. The death benefit is paid to your beneficiaries tax-free upon your death. With a named beneficiary other than the estate, you can eliminate probate fees on the death benefit (not applicable in Quebec). The Preserve your wealth strategy should be reviewed with your tax advisor and accountant to ensure the strategy is appropriate based on your needs.

The Preserve your wealth strategy offers:

Permanent life insurance protection and client control of capital in a tax-advantaged insurance policy

Potential for tax-advantaged accumulation that transfers tax-free to beneficiaries upon your death

Funding to offset anticipated tax liability

Flexibility to change the policy beneficiary, and coverage amount (subject to any underwriting requirements)

The elimination of probate fees at death with a named beneficiary other than the estate (not applicable in Quebec) For more information about this and other estate planning material, contact your financial advisor!

All comments related to taxation are general in nature and are based on Canadian tax legislation, which is subject to change, and apply to Canadian residents. For the implications as they relate to individual circumstances, consult the appropriate legal, accounting or tax expert.

Planning to meet the needs of children or adults who have special needs is often complex. Special financial planning techniques may be needed so you don’t jeopardize any government benefits they may be receiving. A further complication arises because many who have special needs require advice and protection throughout their lifetime from someone with legal authority to act on their behalf. For most persons with special needs, particularly those who are judged to be mentally challenged, two types of protections are required:

1. protection of the estate left to the individual;
2. protection of his or her person in some form of guardianship.

In practice, provisions for these two types of protection often overlap.

Why should families plan?

Some parents of a child with special needs are not able to see the necessity or benefit of estate planning for that child, although they are genuinely concerned about the long-term welfare of their child. Their child’s basic needs are presently being met by the state and in their thinking, will likely always be met by various levels of government funding. They, therefore, see no need to make provision in their will(s) for the needs of their child. For those parents who want to plan, but who have been told the child cannot have assets if government benefits are to be payable, specific planning options should be developed as a means of addressing the problem.

Will and trust provisions

The will should address such issues as guardianship of the child. Further, if funds are to be left at death, a trust can be established under the will to deal with the assets and provide for income/capital requirements for the child. If the child has a source of income, then he or she may be entitled to assistance depending on the amount of income. If the child owns marketable assets the authorities in most circumstances reject an application for assistance until such time as money realized for the assets have been depleted. In order to avoid a refusal of social assistance, the following points ought to be kept in mind:

As it is unlikely that the survivor with special needs will ever be able to have the earning capacity that someone without special needs would have, they will be unable to purchase many of the same material items and afford the same travel expenses. Therefore, it is important to make provision in the will which will provide for those expenditures while not impairing the survivor’s entitlement to social assistance. As long as the testamentary gift or trust does not result in the hands of the survivor, he or she does not have an interest in the estate, and does not have an income which will affect his or her ability to receive social assistance.

It is very important to a family of limited means that what little savings they have at time of death not be depleted. It is important that their life savings be used over time to supplement what social assistance will provide to their survivor.

Social assistance and other forms of government assistance only provides a minimum standard of living to recipients and occasionally will not pay for all programs which are available or in the best interests of the survivor with special needs. The vehicle available to avoid the depletion referred to above and to provide the material items, travel expenses and other amenities of life to the survivor without impairing their ability to receive social assistance is the discretionary trust.

How should the trust be worded?

A discretionary trust usually results from either:

a specific fund of a specific amount being established in the will, or

a portion of the residue constituting the trust. As long as the wording of the discretionary trust does not legally enable the survivor to the right to receive benefits from the trustee, the survivor does not have an asset. Drafting of the trust provision is therefore very important. In particular, the trust should be worded in such a way which will preclude the survivor from being in a position to demand or force the trustee to make payment on his or her behalf. The payments are therefore entirely at the “discretion” of the trustee.

Guardianship

In most cases, it is advisable to appoint a guardian for the adult survivor who has special needs. The guardian is an advocate of the survivor and is a person who makes decisions regarding the well-being of the survivor where the survivor is not capable of making such decisions. Again, the will can be used to make provision for the guardianship.

Life insurance

Some parents who do not have a large estate will wish to build up a fund for the child by naming him or her as a beneficiary of a life insurance policy. While insurance is a very useful method of increasing the family’s assets, it is generally not a good idea to make the child a beneficiary of the policy. If there are any serious questions as to the child’s ability to handle money, the insurance proceeds should be made payable to the parent’s estate in which event the money will be dealt with under the will of the deceased person. Alternatively, it could be paid directly into a trust established outside of the will in which case the trustee will dispose of the insurance proceeds in the manner described in the trust agreement.

The above should not be taken as providing legal, accounting or tax advice. You should obtain your own independent professional advice from your lawyer and/or accountant to take into account your particular circumstances.